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INTERMEDIATE AUDIT – MCQ TEST – MODULE 1 – BY CA HARSHAD
JAJU
CHAPTER 1: Nature, Objective and Scope of Audit
1. Direct financial interest or materially significant indirect
financial interest in a client is an example of
(a) Self-review threats (b) Self-interest threats (c) Advocacy
threats (d) Intimidation threats
2. are self-evident, and occur when auditors form relationships
with the client where they end up being too sympathetic to the
client’s interests.
(a) Familiarity threats (b) Self-interest threats (c) Advocacy
threats (d) Intimidation threats
3. If the auditor concludes that there is reasonable
justification to change the engagement and if the audit work
performed complied with the SAs applicable to the changed
engagement, the
report issued would be appropriate for the revised terms of
engagement. In order to avoid
confusion, the report would not include reference to:
(a) The original engagement or any procedures that may have been
performed in the original engagement.
(b) The original engagement; (c) Any procedures that may have
been performed in the original engagement (d) The original
engagement and any procedures that may have been performed in the
original
engagement.
4. As explained in SA 200, “Overall Objectives of the
Independent Auditor and the Conduct of an Audit in Accordance with
Standards on Auditing”, is obtained when the auditor has
obtained sufficient appropriate audit evidence to reduce audit
risk (i.e., the risk that the auditor
expresses an inappropriate opinion when the financial statements
are materially misstated) to
an acceptably low level.
(a) Absolute assurance (b) Limited assurance (c) Reasonable
assurance (d) Reasonable or absolute assurance
5. A request from the client for the auditor to change the
engagement may result from- 1. A change in circumstances affecting
the need for the service, 2. A misunderstanding as to the nature of
an audit or related service originally requested 3. A restriction
on the scope of the engagement, whether imposed by management or
caused
by circumstances.
(a) (1) only
(b) (1) and (2)
(c) (1), (2) and (3)
(d) (1) or (2) or (3)
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6. If the auditor is unable to agree to a change of the terms of
the audit engagement and is not permitted by management to continue
the original audit engagement, the auditor shall:
(a) Withdraw from the audit engagement where possible under
applicable law or regulation; (b) Determine whether there is any
obligation, either contractual or otherwise, to report the
circumstances to other parties, such as those charged with
governance, owners or regulators.
(c) Withdraw from the audit engagement where possible under
applicable law or regulation and determine whether there is any
obligation, either contractual or otherwise, to report the
circumstances to other parties, such as those charged with
governance, owners or regulators.
(d) Withdraw from the audit engagement where possible under
applicable law or regulation or determine whether there is any
obligation, either contractual or otherwise, to report the
circumstances to other parties, such as those charged with
governance, owners or
regulators.
7. If the auditor concludes that there is reasonable
justification to change the engagement and if the audit work
performed complied with the SAs applicable to the changed
engagement, the report
issued would be appropriate for the revised terms of engagement.
In order to avoid confusion, the
report would not include reference to:
(a) The original engagement; or any procedures that may have
been performed in the original engagement.
(b) The original engagement ; (c) Any procedures that may have
been performed in the original engagement (d) The original
engagement and any procedures that may have been performed in the
original
engagement.
8. There are two interlinked perspectives of independence of
auditors, one, independence of mind; and two,
(a) Objectivity (b) Professional competence (c) Integrity (d)
Independence in appearance.
9. A request from the client for the auditor to change the
engagement may result from- (a) A change in circumstances affecting
the need for the service, (b) A misunderstanding as to the nature
of an audit or related service originally requested (c) A
restriction on the scope of the engagement, whether imposed by
management or caused
by circumstances.
(d) All of the above
10. According to SA 210 “Agreeing the Terms of Audit
Engagements”, The auditor shall agree the terms of the audit
engagement with :
(a) Management (b) Those charged with governance (c) Management
or those charged with governance, as appropriate. (d) Audit
committee
11. The agreed terms of the audit engagement shall be recorded
in (a) An audit engagement letter (b) An audit engagement letter or
other suitable form of written agreement (c) Any suitable form of
written agreement
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(d) None of the above
12. If law or regulation prescribes in sufficient detail the
terms of the audit engagement , (a) The auditor need not record
them in a written agreement, except for the fact that such law
or regulation applies and that management acknowledges and
understands its
responsibilities.
(b) The auditor need not record them in a written agreement (c)
The auditor needs to record them in a written agreement (d) None of
the above
13. A request from the client for the auditor to change the
engagement may result from- (a) A change in circumstances affecting
the need for the service, (b) A misunderstanding as to the nature
of an audit or related service originally requested (c) A
restriction on the scope of the engagement, whether imposed by
management or caused
by circumstances.
(d) All of the above
14. SA 220 sets out the _ responsibilities with respect to
relevant ethical requirements. (a) Firm’s (b) Senior Audit
Assistant (c) Engagement partner’s (d) All the above
15. SA 220 recognizes that the _is entitled to rely on a firm’s
systems in meeting its responsibilities with respect to quality
control procedures.
(a) Engagement partner (b) Engagement team (c) Firm (d) Senior
Audit Assistant
16. If the auditor concludes that there is reasonable
justification to change the engagement and if the audit work
performed complied with the SAs applicable to the changed
engagement,
the report issued would be appropriate for the revised terms of
engagement. In order to avoid
confusion, the report would not include reference to:
(a) The original engagement; or any procedures that may have
been performed in the original engagement.
(b) The original engagement; (c) Any procedures that may have
been performed in the original engagement (d) The original
engagement and any procedures that may have been performed in the
original
engagement.
17. If the auditor concludes that there is reasonable
justification to change the engagement and if the audit work
performed complied with the SAs applicable to the changed
engagement, the
report issued would be appropriate for the revised terms of
engagement. In order to avoid
confusion, the report would not include reference to:
(a) The original engagement; or any procedures that may have
been performed in the original engagement.
(b) The original engagement; (c) Any procedures that may have
been performed in the original engagement
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(d) The original engagement and any procedures that may have
been performed in the original engagement.
CHAPTER 2: Audit Strategy, Audit Planning and Audit Programme 1.
When planning the audit,
(a) The auditor considers what would make the financial
information materially misstated. (b) The auditor need not consider
what would make the financial information materially
misstated.
(c) The auditor need not consider what would make the financial
information materially misstated at planning stage
(d) The auditor needs to consider what would make the financial
information materially misstated while conducting audit only
2. SA 320 on “Materiality in Planning and Performing an Audit”
requires that an auditor (a) Should not consider materiality and
its relationship with audit risk while conducting an
audit.
(b) Should consider materiality and its relationship with audit
risk while conducting an audit. (c) Should not consider materiality
but should consider its relationship with audit risk while
conducting an audit.
(d) Should consider materiality but need not consider its
relationship with audit risk while conducting an audit.
3. Determining a percentage to be applied to a chosen benchmark
(in relation to materiality) involves the exercise of
a. Independence b. Professional Judgment c. Professional
skepticism d. All of the above
4. Once the overall audit strategy has been established, _can be
developed to address the various matters identified in the overall
audit strategy, taking into account the need to achieve
the audit objectives through the efficient use of the auditor’s
resources.
a. Audit strategy b. Audit plan c. Audit plan and audit strategy
d. Audit note book
5. With reference to SA 300, the auditor shall document: (a) The
overall audit strategy (b) The audit plan (c) Any significant
changes made during the audit engagement to the overall audit
strategy or
the audit plan, and the reasons for such changes.
(d) All of the above
6. Once the overall audit strategy has been established,
_________can be developed to address the various matters identified
in the overall audit strategy, taking into account the need to
achieve the audit objectives through the efficient use of the
auditor’s resources.
a. Audit strategy b. Audit plan
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c. Audit plan and audit strategy d. Audit note book
7. The auditor shall develop an audit plan that shall include a
description of: a. The nature, timing and extent of planned risk
assessment procedures b. The nature, timing and extent of planned
further audit procedures at the assertion
level.
c. Other planned audit procedures that are required to be
carried out so that the engagement complies with SAs.
d. All of the above
8. Planning an audit involves establishing the overall audit
strategy for the engagement and (a) Developing an audit plan.
(b) Enveloping an audit program
(c) Developing detailed strategy
(e) Any of the above
9. Coyote Ltd. is dealing in trading of electronic goods. Huge
inventory (60% approximately) of the company is lying on
consignment (i.e. under the custody of third party). CA. Star, the
auditor
of the company, wants to obtain sufficient appropriate audit
evidence regarding the existence
and condition of the inventory lying on consignment. Thus, he
requested & obtained
confirmation from the third party as to the quantities and
condition of inventory held on behalf
of the entity, however, it raised doubts about the integrity and
objectivity of the third party.
Which of the following other audit procedures may be performed
by CA. Star to obtain sufficient
appropriate audit evidence regarding the existence and condition
of the inventory under the
custody of third party?
a. Attend third party’s physical counting of inventory. b.
Arrange for another auditor to attend third party’s physical
counting of inventory. c. Inspect warehouse receipts regarding
inventory held by third parties. d. All of the above.
10. SA 320 on “Materiality in Planning and Performing an Audit”
requires that an auditor a. Should not consider materiality and its
relationship with audit risk while conducting an
audit.
b. Should consider materiality and its relationship with audit
risk while conducting an audit. c. Should not consider materiality
but should consider its relationship with audit risk while
conducting an audit.
d. Should consider materiality but need not consider its
relationship with audit risk while conducting an audit.
11. When planning the audit, a. The auditor considers what would
make the financial information materially misstated. b. The auditor
need not consider what would make the financial information
materially
misstated.
c. The auditor need not consider what would make the financial
information materially misstated at planning stage
d. The auditor needs to consider what would make the financial
information materially misstated while conducting audit only
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12. With reference to SA 300, the auditor shall document: a. The
overall audit strategy b. The audit plan c. Any significant changes
made during the audit engagement to the overall audit strategy
or
the audit plan, and the reasons for such changes.
d. All of the above
CHAPTER 3: Audit Documentation and Audit Evidence 1. Which of
the following is incorrect :
a. In terms of the general principles of law, any person having
the lawful possession of somebody else’s property, on which he has
worked, may retain the property for non-
payment of his dues on account of the work done on the
property.
b. Under section 128 of the Act, books of account of a company
must be kept at the registered office. These provisions ordinarily
make it impracticable for the auditor to have possession
of the books and documents.
c. The company provides reasonable facility to auditor for
inspection of the books of account by directors and others
authorized to inspect under the Act.
d. Working papers not being his own property, auditor can
exercise lien on working papers.
2. refers to a difference between the amount, classification,
presentation, or disclosure of a reported financial statement item
and the amount, classification, presentation, or disclosure
that is required for the item to be in accordance with the
applicable financial reporting
framework.
a. Misstatement b. Error c. Fraud d. Any of the above
3. Audit evidence includes a. Information contained in the
accounting records underlying the financial statements b. Both
information contained in the accounting records underlying the
financial statements
and other information.
c. Other information. d. Information contained in the accounting
records underlying the financial statements or
other information.
4. Most of the auditor’s work in forming the auditor’s opinion
consists of : a. Obtaining audit evidence. b. Evaluating audit
evidence. c. Obtaining or evaluating audit evidence. d. Obtaining
and evaluating audit evidence.
5. Audit documentation provides: a. Evidence of the auditor’s
basis for a conclusion about the achievement of the overall
objectives of the auditor; or evidence that the audit was
planned and performed in
accordance with SAs and applicable legal and regulatory
requirements.
b. Evidence of the auditor’s basis for a conclusion about the
achievement of the overall objectives of the auditor; and evidence
that the audit was planned and performed in
accordance with SAs and applicable legal and regulatory
requirements.
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c. Evidence of the auditor’s basis for a conclusion about the
achievement of the overall objectives of the auditor
d. Evidence that the audit was planned and performed in
accordance with SAs and applicable legal and regulatory
requirements.
6. Which of the following is not an example of audit
documentation: a. Audit Programme b. Summaries of significant
matters c. Audit file d. Checklists.
7. Minnie Ltd., a listed company, appointed CA. Kranny for
auditing complete set of consolidated financial statements of the
company. CA. Kranny is unable to obtain sufficient appropriate
audit
evidence regarding an investment in a foreign associate. The
possible effects of the inability to
obtain sufficient appropriate audit evidence are deemed to be
material but not pervasive to the
consolidated financial statements. Based on the audit evidence
obtained, CA. Kranny concludes
that a material uncertainty does not exist related to events or
conditions that may cast significant
doubt on the company’s ability to continue as a going concern in
accordance with SA 570. State
what type of opinion CA. Kranny must have provided in the given
scenario?
a. Unmodified opinion. b. Qualified opinion. c. Adverse opinion.
d. Disclaimer of opinion.
8. CA. Bobby is a recently qualified Chartered Accountant. He is
appointed as an auditor of Droopy Ltd. for the current Financial
Year 2017-18. He is quite conservative in nature which is
also replicated in his professional work. CA. Bobby is of the
view that he shall record all the
matters related to audit, audit procedures to be performed,
audit evidence obtained and
conclusions reached. Thus, he maintained a file and recorded
each and every of his findings
during the audit. His audit file, besides other thing, includes
audit programmes, notes reflecting
preliminary thinking, letters of confirmation, e-mails
concerning significant matters, etc. State
which of the following need not be included in the audit
documentation?
a. Audit programmes. b. Notes reflecting preliminary thinking.
c. Letters of confirmation. d. E-mails concerning significant
matters.
9. Which of the following is correct : (a) The auditor shall
assemble the audit documentation in an audit file and complete
the
administrative process of assembling the final audit file on a
timely basis after the date of
the auditor’s report.
(b) The auditor shall assemble the audit documentation in an
audit file and shall not complete the administrative process of
assembling the final audit file.
(c) The auditor shall assemble the audit documentation in an
audit file and complete the administrative process of assembling
the final audit file on a timely basis before the date of
the auditor’s report.
(d) The auditor shall not assemble the audit documentation in an
audit file.
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10. Which of the following is not an example of audit
documentation: (a) Audit programmes (b) Summaries of significant
matters (c) Audit file (d) Checklists.
11. Audit documentation provides: (a) Evidence of the auditor’s
basis for a conclusion about the achievement of the overall
objectives of the auditor; or evidence that the audit was
planned and performed in accordance
with SAs and applicable legal and regulatory requirements.
(b) Evidence of the auditor’s basis for a conclusion about the
achievement of the overall objectives of the auditor; and evidence
that the audit was planned and performed in
accordance with SAs and applicable legal and regulatory
requirements.
(c) Evidence of the auditor’s basis for a conclusion about the
achievement of the overall objectives of the auditor
(d) Evidence that the audit was planned and performed in
accordance with SAs and applicable legal and regulatory
requirements.
12. Which statement is correct regarding written representations
(a) Although written representations provide necessary audit
evidence, they do not provide
sufficient appropriate audit evidence on their own about any of
the matters with which
they deal.
(b) Written representations provide sufficient appropriate audit
evidence on their own about any of the matters with which they
deal.
(c) Written representations neither provide necessary audit
evidence nor provide sufficient appropriate audit evidence.
(d) Written representations are not related to audit
evidence.
13. _ refers to the record of audit procedures performed,
relevant audit evidence obtained, and conclusions the auditor
reached.
(a) Audit documentation (b) Audit File (c) Audit Note Book (d)
Completion Memorandum
14. refer to an attitude that includes a questioning mind, being
alert to conditions which may indicate possible misstatement due to
error or fraud, and a critical assessment of
audit evidence.
a. Professional skepticism b. Professional Judgment c. Integrity
d. Objectivity
15. _ refers to the record of audit procedures performed,
relevant audit evidence obtained, and conclusions the auditor
reached.
a. Audit documentation b. Audit File c. Audit Note Book d.
Completion Memorandum
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16. Audit programs, Analyses, Issues memorandum, Summaries of
significant matters. are examples of :
(a) Audit Evidence
(b) Audit Documentation
(c) Audit File
(d) Final Audit File
17. Audit programmes.
Analyses.
Issues memoranda.
Summaries of significant matters.
Are examples of;
(a) Audit Evidence (b) Audit Documentation (c) Audit File (d)
Final Audit File
18. Audit evidence is necessary to support the auditor’s opinion
and report. It is_ _in Nature and is primarily obtained from audit
procedures performed during the course of the
audit.
(a) Cumulative (b) Regressive (c) Selective (d) Objective
19. Professional skepticism is necessary to the critical
assessment of (a) Audit documentation (b) Audit evidence. (c) Audit
procedures (d) All of the above
20. After the assembly of the final audit file has been
completed (a) The auditor shall delete or discard the audit
documentation of any nature before the end of
its retention period.
(b) The auditor may delete or discard audit documentation of any
nature before the end of its retention period.
(c) The auditor may not delete or discard audit documentation of
any nature before the end of its retention period.
(d) The auditor shall not delete or discard audit documentation
of any nature before the end of its retention period.
21. CA. Goofy has been appointed as an auditor for audit of a
complete set of financial statements of Dippy Ltd., a listed
company. The financial statements of the company are prepared by
the
management in accordance with the Accounting Standards
prescribed under section 133 of the
Companies Act, 2013. However, the inventories are misstated
which is deemed to be material
but not pervasive to the financial statements. Based on the
audit evidences obtained, CA. Goofy
has concluded that a material uncertainty does not exist related
to events or conditions that may
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cast significant doubt on the entity’s ability to continue as a
going concern in accordance with
SA 570. Further, CA. Goofy is also aware of the fact that a
qualified opinion would be
appropriate due to a material misstatement of the Financial
Statements. State what phrases
should the auditor use while drafting such opinion
paragraph?
a. In our opinion and to the best of our information and
according to the explanations given to us, except for the effects
of the matter described in the Basis for Qualified Opinion
section of our report, the aforesaid financial statements
present fairly, in all material
respects, or give a true and fair view in conformity with the
applicable financial
reporting framework.
b. In our opinion and to the best of our information and
according to the explanations given to us, with the foregoing
explanation, the aforesaid financial statements present fairly,
in all material respects, or give a true and fair view in
conformity with the applicable
financial reporting framework.
c. In our opinion and to the best of our information and
according to the explanations given to us, subject to the
misstatement regarding inventories, the aforesaid financial
statements present fairly, in all material respects, or give a
true and fair view in
conformity with the applicable financial reporting
framework.
d. In our opinion and to the best of our information and
according to the explanations given to us, with the explanation
described in the Basis for Qualified Opinion section of our
report, the aforesaid financial statements present fairly, in
all material respects, or give
a true and fair view in conformity with the applicable financial
reporting framework.
22. which of the following is incorrect : a. Inquiry consists of
seeking information of unknown persons, both financial and non-
financial, within the entity or outside the entity.
b. Inquiry is used extensively throughout the audit in addition
to other audit procedures. c. Inquiries may range from formal
written inquiries to informal oral inquiries. Evaluating
responses to inquiries is an integral part of the inquiry
process.
d. Responses to inquiries may provide the auditor with
information not previously possessed or with corroborative audit
evidence.
23. If the auditor is unable to obtain sufficient appropriate
audit evidence regarding the opening balances, the auditor shall
express :
a. A disclaimer opinion b. A qualified opinion c. A qualified
opinion or a disclaimer of opinion, as appropriate, in accordance
with SA 705. d. Unmodified opinion
24. Audit evidence includes a. Information contained in the
accounting records underlying the financial statements b. Both
information contained in the accounting records underlying the
financial statements
and other information.
c. Other information. d. Information contained in the accounting
records underlying the financial statements or
other information.
25. Most of the auditor’s work in forming the auditor’s opinion
consists of : a. Obtaining audit evidence. b. Evaluating audit
evidence.
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c. Obtaining or evaluating audit evidence. d. Obtaining and
evaluating audit evidence.
26. Which of the following is correct : a. The auditor shall
assemble the audit documentation in an audit file and complete
the
administrative process of assembling the final audit file on a
timely basis after the date of
the auditor’s report.
b. The auditor shall assemble the audit documentation in an
audit file and shall not complete the administrative process of
assembling the final audit file.
c. The auditor shall assemble the audit documentation in an
audit file and complete the administrative process of assembling
the final audit file on a timely basis before the date
of the auditor’s report.
d. The auditor shall not assemble the audit documentation in an
audit file.
CHAPTER 4: Risk Assessment and Internal Control
1. Audit risk is a function of the a. Risks of material
misstatement and detection risk. b. Audit risk and detection risk.
c. Control risk and detection risk. d. Inherent risk and detection
risk.
2. The auditor shall design and perform audit procedures in
order to identify litigation and claims involving the entity which
may give rise to a risk of material misstatement, including:
a. Inquiry of management and, where applicable, others within
the entity, including in-house legal counsel.
b. Reviewing minutes of meetings of those charged with
governance and correspondence between the entity and its external
legal counsel.
c. Reviewing legal expense accounts. d. All of the above.
3. SA 315 establishes requirements and provides guidance on
identifying and assessing the risks of material misstatement -
a. At the financial statement levels only. b. At the assertion
levels only. c. At the financial statement and assertion levels. d.
At the financial statement or assertion levels.
4. Auditor’s judgment as to sufficiency may be affected by the
factors such as: (a) Materiality (b) Risk of material misstatement
(c) Size and characteristics of the population. (d) All of the
above
5. Audit risk is a function of the (a) Risks of material
misstatement and detection risk. (b) Audit risk and detection risk.
(c) Control risk and detection risk. (d) Inherent risk and
detection risk.
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6. Risk of material misstatement may be defined as the risk (a)
That the financial statements are materially misstated after audit.
(b) That the financial statements are materially misstated during
audit. (c) That the financial statements are materially misstated
prior to audit. (d) All of the above
7. Standard on Quality Control (SQC) 1 provides that, (a) Unless
otherwise specified by law or regulation, audit documentation is
the property of the
management.
(b) Unless otherwise specified by law or regulation, audit
documentation is the property of those charged with governance.
(c) Unless otherwise specified by law or regulation, audit
documentation is the property of the management or those charged
with governance.
(d) Standard on Quality Control (SQC) 1 provides that, unless
otherwise specified by law or regulation, audit documentation is
the property of the auditor.
8. Determining a percentage to be applied to a chosen benchmark
(in relation to materiality) involves the exercise of
a. Independence b. Professional Judgment c. Professional
skepticism d. All of the above
9. Components of risk of material misstatement at the assertion
level are : (a) Inherent risk and detection risk
(b) Inherent risk and control risk
(c) Control risk and detection risk
(d) Inherent risk, control risk and detection risk
10. refer to the audit procedures performed to obtain an
understanding of the entity and its environment, including the
entity’s internal control, to identify and assess the risks of
material misstatement, whether due to fraud or error, at the
financial statement and assertion
levels.
a. Audit assessment procedures b. Substantive procedures c. Test
of control d. Risk assessment procedures
11. When more persuasive audit evidence is needed regarding the
effectiveness of a control, (a) It may be appropriate to increase
the extent of testing of the control and reduce the extent
of the degree of reliance on controls.
(b) It may be appropriate to decrease the extent of testing of
the control as well as the degree
of reliance on controls.
(c) It may be appropriate to decrease the extent of testing of
the control and increase the extent
of the degree of reliance on controls.
(d) It may be appropriate to increase the extent of testing of
the control as well as the degree
of reliance on controls.
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12. The susceptibility of an assertion about a class of
transaction, account balance or disclosure to a misstatement that
could be material, either individually or when aggregated with
other
misstatements, before consideration of any related controls
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(a) Control Risk (b) Inherent Risk (c) Detection Risk (d) Audit
Risk
13. The management of Magoo Ltd. has developed a strong internal
control in its accounting system in such a way that the work of one
person is reviewed by another. Since no individual employee
is allowed to handle a task alone from the beginning to the end,
the chances of early detection
of frauds and errors are high. CA. Olive has been appointed as
an auditor of the company for
current Financial Year 2017-18. Before starting the audit, she
wants to evaluate the internal
control system of Magoo Ltd. To facilitate the accumulation of
the information necessary for
the proper review and evaluation of internal controls, CA. Olive
decided to use internal control
questionnaire to know and assimilate the system and evaluate the
same. Which of the following
questions need not be framed under internal control
questionnaire relating to purchases?
a. Are authorized signatories for purchases limited to elected
officials? b. Are payments approved only on original invoices? c.
Does authorized official thoroughly review the documents before
signing cheques? d. Are monthly bank reconciliations implemented
for each and every bank accounts of the
company?
14. The risks of material misstatement at the assertion level
consist of two components: a. Inherent risk and detection risk b.
Control risk and detection risk c. Audit risk and detection risk d.
Inherent risk and control risk
15. Audit risk is a function of the a. Risks of material
misstatement and detection risk. b. Audit risk and detection risk.
c. Control risk and detection risk. d. Inherent risk and detection
risk.
16. Risk of material misstatement may be defined as the risk a.
That the financial statements are materially misstated after audit.
b. That the financial statements are materially misstated during
audit. c. That the financial statements are materially misstated
prior to audit. d. All of the above.
17. The auditor shall design and perform audit procedures in
order to identify litigation and claims involving the entity which
may give rise to a risk of material misstatement, including:
a. Inquiry of management and, where applicable, others within
the entity, including in-house legal counsel.
b. Reviewing minutes of meetings of those charged with
governance and correspondence between the entity and its external
legal counsel.
c. Reviewing legal expense accounts. d. All of the above
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18. Risk of material misstatement may be defined as the risk a.
That the financial statements are materially misstated after audit.
b. That the financial statements are materially misstated during
audit. c. That the financial statements are materially misstated
prior to audit. d. All of the above
19. Which of the following is correct : a. The auditor is not
expected to, and cannot, reduce audit risk to zero and cannot
therefore
obtain absolute assurance that the financial statements are free
from material misstatement
due to fraud or error.
b. The auditor is expected to and can reduce audit risk to zero
and can therefore obtain absolute assurance.
c. The auditor is not expected to, and cannot, reduce audit risk
to zero and cannot therefore obtain reasonable assurance that the
financial statements are free from material
misstatement due to fraud or error.
d. The auditor is expected to and can reduce audit risk to zero
and can therefore obtain reasonable assurance that the financial
statements are free from material misstatement due
to fraud or error.
CHAPTER 5: Fraud and Responsibilities of the Auditor in this
Regard
1. If, as a result of a misstatement resulting from fraud, the
auditor encounters exceptional circumstances that bring into
question his ability to continue performing the audit, he
shall-
a. Withdraw from the engagement immediately. b. Report to Audit
team regarding withdrawal. c. Determine the professional and legal
responsibilities applicable in the circumstances. d. Ask the
management for his withdrawal.
2. One of your junior audit team members is confused with the
term ‘material misstatement’. You explain him that a material
misstatement is untrue information in a financial statement that
could
affect the financial decisions of one who relies on the
statement. Which of the following would
constitute material misstatement?
(1) An error of Rs.5,000 in relation to assets of Rs.20 lakhs.
(2) A payroll fraud of Rs.100 in a company where profit before tax
is Rs.11,000. (3) Non-disclosure of a material uncertainty. (4)
Financial statements have been prepared on a going concern basis
when the company is
in the process of being liquidated.
(a) 1 and 2 (b) 3 and 4 (c) 2 and 3 (d) 1 and 4
3. The standard that requires auditors to analyses journal
entries in an audit is? a. SA 260 b. SA 230 c. SA 315 d. SA 240
4. Misstatements in the financial statements can arise either
from fraud or error. The auditor is concerned with fraud that
causes a material misstatement in the financial statements which
may
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further be classified as fraudulent financial reporting or
misappropriation of assets.
There are certain events or conditions that indicate an
incentive or pressure to commit fraud or
provide an opportunity to commit fraud which may be termed as
fraud risk factors. Which of
the following is an example of fraud risk factor relating to
misstatements arising from
misappropriation of assets?
a. Known history of violations of laws and regulations. b.
Management failing to remedy known significant deficiencies in
internal control on a
timely basis.
c. Inventory items that are small in size, but of high value or
in high demand. d. An interest by management in employing
inappropriate means to minimize reported
earnings for tax- motivated reasons.
5. The type of errors, existence of which becomes apparent in
the process of compilation of accounts is known as-
a. Self-revealing errors. b. Intentional errors. c. Concealed
errors. d. Unconcealed errors.
6. Tolerable error, is the maximum monetary error that the
auditor is prepared to accept in the population and still conclude
that audit objective has been achieved, is directly related to
a. Sample size b. Audit risk c. Materiality d. Expected
error
7. __ refers to a difference between the amount, classification,
presentation, or disclosure of a reported financial statement item
and the amount, classification, presentation, or disclosure that
is
required for the item to be in accordance with the applicable
financial reporting framework.
(a) Misstatement (b) Error (c) Fraud (d) Any of the above
8. The assessment of risks is a (a) Matter capable of precise
measurement rather than matter of professional judgment (b) Matter
of professional judgment, rather than a matter capable of precise
measurement. (c) Matter of professional judgment as well as capable
of precise measurement sometimes. (d) None of the above
9. The assessment of the risks of material misstatement may be
expressed in a. Quantitative terms, such as in percentages, or in
non-quantitative terms. b. Quantitative terms, such as in
percentages, c. Non-quantitative terms. d. None of the above
10. Which of the following is correct : a. The auditor shall
express a qualified opinion when the auditor, having obtained
sufficient
appropriate audit evidence, concludes that misstatements,
individually or in the aggregate,
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are both material and pervasive to the financial statements.
b. The auditor shall express a disclaimer opinion when the
auditor, having obtained sufficient appropriate audit evidence,
concludes that misstatements, individually or in the aggregate,
are both material and pervasive to the financial statements.
c. The auditor shall express an adverse opinion when the
auditor, having obtained sufficient appropriate audit evidence,
concludes that misstatements, individually or in the aggregate,
are both material and pervasive to the financial statements.
d. The auditor shall express an adverse opinion when the
auditor, having obtained sufficient appropriate audit evidence,
concludes that misstatements, individually or in the aggregate,
are material, but not pervasive, to the financial
statements.
CHAPTER 6: Audit in an Automated Environment 1. When deviations
from controls upon which the auditor intends to rely are
detected,
(a) The auditor shall not make any inquiries to understand these
matters and their potential consequences
(b) The auditor shall make specific inquiries to understand
these matters and their potential consequences
(c) The auditor shall make general inquiries to understand these
matters and their potential consequences
(d) The auditor shall make both general as well as specific
inquiries to understand these matters and their potential
consequences
CHAPTER 7: Audit Sampling 1. Which of the following factors is
(are) considered in determining the sample size for tests of
control?
(a) Projected error (b) Tolerable error (c) Expected error (d)
Both (b) and (c)
2. Which of the following is source of Non Sampling risk : a.
Human Mistakes b. Applying audit procedures not appropriate to the
objectives of audit c. Misinterpreting the sample results d. All of
the above
3. While auditing TEN Ltd., CA. Porky divided the whole
population of trade receivables balances to be tested in a few
separate groups called ‘strata’ and started taking a sample from
each of
them. He treated each stratum as if it was a separate
population. He divided the trade receivables
balances of TEN Ltd. for the Financial Year 2017-18 into groups
on the basis of personal
judgment as follows:
S. No. Particulars
1 Balances in excess of Rs. 10,00,000;
2 Balances in the range of Rs. 7,75,001 to Rs. 10,00,000;
3 Balances in the range of Rs. 5,50,001 to Rs. 7,75,000;
4 Balances in the range of Rs. 2,25,001 to Rs. 5,50,000;
5 Balances Rs. 2,25,000 and below
Form the above mentioned groups, CA. Porky picked up different
percentage of items for
examination from each of the groups, for example, from the top
group i.e. balances in excess of
-
Rs.10,00,000, he selected all the items to be examined; from the
second group, he opted for 25
% of the items to be examined; from the lowest group, he
selected 2% of the items for
examination; and so on from rest of the groups. Which one of the
following methods of sample
selection is he following?
i. Systematic sampling. ii. Stratified sampling.
iii. Section sampling. iv. Selection sampling.
4. In the case of tests of details a. The projected misstatement
plus anomalous misstatement, if any, is the auditor’s best
estimate of misstatement in the population.
b. The projected misstatement is the auditor’s best estimate of
misstatement in the population. c. The anomalous misstatement is
the auditor’s best estimate of misstatement in the population. d.
The projected misstatement plus anomalous misstatement, if any,
cannot be the auditor’s best
estimate of misstatement in the population.
5. Which of the following is correct : a. When the projected
misstatement exceeds tolerable misstatement, the sample does
not
provide a reasonable basis for conclusions about the population
that has been tested.
b. When the projected misstatement plus anomalous misstatement,
if any, exceeds tolerable misstatement, the sample does not provide
a reasonable basis for conclusions about the
population that has been tested.
c. When the anomalous misstatement exceeds tolerable
misstatement, the sample does not provide a reasonable basis for
conclusions about the population that has been tested.
d. When the projected misstatement plus anomalous misstatement,
if any, exceeds tolerable misstatement, the sample provides a
reasonable basis for conclusions about the population
that has been tested.
6. It is a type of value-weighted selection in which sample
size, selection and evaluation results in a conclusion in monetary
amounts :
a. Haphazard sampling b. Monetary Unit Sampling c. Stratified
Sampling d. Interval sampling
CHAPTER 8: Analytical Procedures 1. The matter of difficulty,
time, or cost involved is :
a. Not in itself a valid basis for the auditor to omit an audit
procedure for which there is no alternative.
b. In itself a valid basis for the auditor to omit an audit
procedure for which there is no alternative.
c. Not in itself a valid basis for the auditor to omit an audit
procedure for which alternative exists.
d. Not in itself a valid basis for the auditor to omit an audit
procedure.
2. Judging the significance of a matter requires of the facts
and circumstances (a) Objective analysis (b) Subjective
analysis
-
(c) Both subjective and objective analysis (d) Qualitative
analysis
3. Which of the following is not an analytical procedure? a.
Tracing of purchases recurred in the purchase book to purchase
invoices. b. Comparing aggregate wages paid to number of employees
c. Comparing the actual costs with standard costs d. All of them
are analytical procedure
4. What are analytical procedures? a. Substantive tests designed
to assess control risk b. Substantive tests designed to evaluate
the validity of management’s representation letter c. Substantive
tests designed to study relationships between financial and non-
financial data d. All of the above
5. Analytical procedures issued in the planning stage of an
audit, generally: a. Helps to determine the nature, timing and
extent of other audit procedures b. Directs attention to potential
risk areas c. Indicates important aspects of business d. All of the
above
6. Which of the following statement is correct : (a) Substantive
analytical procedures are generally more applicable to large
volumes of
transactions that tend to be predictable over time
(b) Substantive analytical procedures are generally less
applicable to large volumes of
transactions that tend to be predictable over time
(c) Substantive analytical procedures are generally more
applicable to small volumes of
transactions that tend to be predictable over time
(d) All statements are correct
7. Because the assessment of the risk of material misstatement
takes account of internal control, (a) The extent of substantive
procedures may need to be increased irrespective of the results
from tests of controls.
(b) The extent of substantive procedures may need to be
increased when the results from tests
of controls are satisfactory.
(c) The extent of substantive procedures may need to be
decreased when the results from tests
of controls are unsatisfactory.
(d) The extent of substantive procedures may need to be
increased when the results from tests
of controls are unsatisfactory.
8. The auditor shall assemble the audit documentation in and
complete the administrative process of assembling the final audit
file on a timely basis after the date of the auditor’s report.
a. Audit note book b. Completion memorandum c. Audit file d. Any
of the above
9. The auditor shall assemble the audit documentation in and
complete the administrative process of assembling the final audit
file on a timely basis after the date of the auditor’s report.
-
(a) Audit note book
(b) Completion memorandum
(c) Audit file
(d) Any of the above
10. Marvin Ltd. is a renowned food chain supplier in a posh area
providing restaurant facility along with food delivering. CA. Felix
was appointed as an auditor of the company for the Financial
Year 2017-18. While examining the books of account of the
company, CA. Felix came to know
about one of the major expenses of the company i.e. rent expense
of Rs. 1,20,000 per month,
for which he applied substantive analytical procedure for
verification purpose. Explain, how
would CA. Felix perform substantive analytical procedure in the
given scenario?
a. CA. Felix would inspect every single rent invoice per month
of Rs. 1,20,000 and verify other elements appropriately.
b. CA. Felix would compare the rental expense of the company
with that of another nearby company having corresponding
dimensions, for high degree of accuracy.
c. CA. Felix would select the first month rent invoice of Rs.
1,20,000 and appropriately verifying other elements would predict
that the rent for the whole year would be Rs.
14,40,000 (i.e. Rs. 1,20,000 * 12). Thereafter, he would compare
the actual with his
prediction and follow-up for any fluctuation.
d. (a) and (b), both.
11. Which of the following is correct : a. As per the Standard
on Auditing (SA) 520 “Analytical Procedure” ‘the term
“analytical
procedures” means evaluations of financial information through
analysis of financial data.
b. As per the Standard on Auditing (SA) 520 “Analytical
Procedure” ‘the term “analytical procedures” means evaluations of
financial information through analysis of non-financial
data.
c. As per the Standard on Auditing (SA) 520 “Analytical
Procedure” ‘the term “analytical procedures” means evaluations of
financial information through analysis of plausible
relationships among both financial and non-financial data.
d. As per the Standard on Auditing (SA) 520 “Analytical
Procedure” ‘the term “analytical procedures” means evaluations of
financial information through ratio analysis.
ALL THE BEST